Counterfactuals are thoughts of what "might have been." They are mental representations of possible past outcomes that could have taken place but did not. Counterfactuals merit serious scientific investigation from a psychological perspective because a) they are extremely common, constituting a pervasive feature of mental life, b) they are linked to many unique emotional experiences, particularly regret, and these linkages suggest new insights into coping and adjustment processes, and c) they influence a variety of social judgments, some of which are adaptive (e.g., they may enhance performance) and others of which are dysfunctional (e.g., they may exacerbate judgmental errors). Given the importance of affective and judgmental consequences of counterfactual thinking, a clear understanding of their determinants is of obvious importance. A new 2-stage model of counterfactual generation, one that complements the dominant model of past research (Norm Theory), is presented and tested. Key features--of this model are the partition of counterfactual generation into 2 stages: an initial activation of counterfactual processing, followed by the shaping and constraining of the semantic content of counterfactual thoughts. Accordingly, the determinants of counterfactual generation are divided into two classes of variables, those that serve primarily to "trigger," or activate, counterfactual processing, and those that subsequently "shape" the semantic content of counterfactual representations. The proposed research is intended to provide empirical confirmation for the main assertions of the 2SM. The first set of studies examines. in a laboratory setting, the impact of 4 motivationally derived factors on counterfactual activation and content. The second set of laboratory studies examines the interactive effects of these motivational factors in combination with some factors previously articulated in the counterfactual literature (e.g., exceptionality of antecedent actions) on counterfactual activation and content. The third set explores, using survey/regression designs targeting real world experiences, these same factors in terms of their relation to the perceived potency, lucidity, and persistence of counterfactual thinking. An auxiliary set of studies, not specifically derived from the 2SM but rooted in the same methodological innovations central to this proposal, focuses on the relation of the hindsight bias to counterfactual thinking.